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California Bill Would Ease Banking Rules for Marijuana Businesses Despite Federal Prohibition

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SACRAMENTO, Calif. (Feb. 3, 2020) – Last Monday, the California Assembly passed a bill that would make it easier for banks to work with marijuana businesses in the state.

Asm. Reginald Jones-Sawyer (D-Los Angeles) and Asm. Eduardo Garcia (D-Coachella) introduced Assembly Bill 1525 (AB1525) last year and it carried over to the 2020 session. The legislation clarifies that no state law prohibits a financial institution from providing financial services to a licensed cannabis business. The proposed law would also authorize a state regulatory agency to share a marijuana business’ track-and-trace data with financial institutions. This would reduce the cost and risk to banks as they walk the tightrope in dealing with federal requirements relating to serving state marijuana businesses.

On Jan. 27, the Assembly passed AB1525 by a 65-1 vote.

In November 2016, voters in California approved a ballot measure legalizing marijuana for general use by adults and the law went into effect on Jan. 1, 2018. Since then, the California legislature has proposed numerous laws intended to expand the state’s marijuana market despite federal prohibition. For instance, last fall, California Gov. Gavin Newsom signed a bill that severs a link between state and federal tax law, allowing individuals to deduct expenses from legal marijuana businesses. Enactment of AB1525 would remove yet another barrier to growing the state’s cannabis market. It would further incentivize the market and allow it to expand despite continued federal prohibition efforts.

EFFECT ON FEDERAL PROHIBITION

Under the federal Controlled Substances Act (CSA) passed in 1970, the federal government maintains complete prohibition of marijuana. Of course, the federal government lacks any constitutional authority to ban or regulate cannabis within the borders of a state, despite the opinion of the politically connected lawyers on the Supreme Court. If you doubt this, ask yourself why it took a constitutional amendment to institute federal alcohol prohibition.

Legalization of marijuana in California removed a huge layer of laws prohibiting the possession and use of marijuana in the world’s sixth-largest economy, something that will be extremely difficult for federal prohibitionists to overcome. FBI statistics show that law enforcement makes approximately 99 of 100 marijuana arrests under state, not federal law. By legalizing cannabis, California essentially swept away the basis for 99 percent of marijuana arrests.

Furthermore, figures indicate it would take 40 percent of the DEA’s yearly-budget just to investigate and raid all of the dispensaries in Los Angeles – a single city in a single state. That doesn’t include the cost of prosecution. The lesson? The feds lack the resources to enforce marijuana prohibition without state assistance.

A GROWING MOVEMENT

California joins a growing number of states simply ignoring federal prohibition, and nullifying it in practice.

Washington, Colorado, Oregon and Alaska were the first states to legalize recreational cannabis, and California, Nevada, Maine and Massachusetts joined them after ballot initiatives in favor of legalization passed in November 2016. Michigan followed suit when voters legalized cannabis for general use in 2018. Vermont became the first state to legalize marijuana through a legislative act in 2018. Illinois followed suit in 2019.

With 33 states including allowing cannabis for medical use, the feds find themselves in a position where they simply can’t enforce prohibition anymore.

“The lesson here is pretty straightforward. When enough people say, ‘No!’ to the federal government, and enough states pass laws backing those people up, there’s not much the feds can do to shove their so-called laws, regulations or mandates down our throats,” Tenth Amendment Center founder and executive director Michael Boldin said.

The push to expand the cannabis market in California underscores another important strategic reality. Once a state legalizes marijuana – even if only in a very limited way – it tends to eventually expand. As the state tears down some barriers, markets develop and demand expands. That creates pressure to further relax state law. These new laws represent a further erosion of unconstitutional federal marijuana prohibition.

WHAT’S NEXT

AB1525 now moves to the Senate for further consideration. At the time of this report, the bill had not been referred to a Senate Committee.


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